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On November 13, the CFPB, OCC, and the Fed published final amendments to the official interpretations for regulations implementing Section 129H of TILA, which establishes special appraisal requirements for “higher-risk mortgages,” otherwise termed as “higher-priced mortgage loans” (HPMLs). The final rule increases TILA’s loan exemption threshold for the special appraisal requirements for HPMLs. Each year, the threshold must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The exemption threshold will increase from $31,000 to $32,400 effective January 1, 2024.
On October 30, the U.S. Court of Appeals for the 2nd Circuit affirmed a district court order dismissing a whistleblower lawsuit alleging violations of the False Claims Act (FCA). The three-judge panel concluded that they did not need to “address the public disclosure bar because the [second amended complaint]… fails to state a claim for a violation of the FCA.” According to the panel, the plaintiff did not allege that the defendant knowingly made a misrepresentation material to the government’s decision and that “failure to adequately plead either of these requirements is fatal to a relator's claim."
The original whistleblower complaint, filed in 2014, alleged that the defendant covered losses on loans that it acquired by taking advantage of a shared loss agreement with the FDIC. The complaint also stated that the defendant knowingly reported write-downs on loans already paid off, sold, or irrelevant to the portfolio. The FDIC declined to intervene, and the case was dismissed. The plaintiff appealed and oral arguments were heard on October 12; however, the order found that the plaintiff failed to identify a false claim or false record and did not establish scienter or motive to commit fraud.
On November 3, the U.S. District Court of Nevada granted a payday lender’s motion to stay a case brought by the CFPB, pending a SCOTUS’s decision in Community Financial Services Association of America v. Consumer Financial Protection Bureau (see InfoBytes here and here). The CFPB issued a civil investigative demand (CID) in late 2022 to the lender, as part of an investigation into its lending practices. The lender complied with the CID initially, but later requested a stay due to the impending SCOTUS decision regarding the constitutionality of the CFPB’s funding structure, which could impact the CFPB’s enforcement authority. Although the CFPB opposed the stay by arguing that the extensive delay could hinder its ability to investigate the lender, the court granted the lender’s motion, in line with other district courts that have faced similar issues.
On November 3, the FTC filed suit against a fintech firm within the U.S. Southern District Court of New York. The FTC alleged the fintech mobile app misled customers, “violated Section 5 of the FTC Act[,] and made it hard to cancel services in violation of the Restore Online Shoppers’ Confidence Act (ROSCA).” However, the FTC and Defendant stipulated the entry of a proposed settlement order that includes a monetary judgment of $18 million for consumer refunds and requires Defendant to stop its deceptive marketing practices and end tactics that prevented customers from canceling services. The first time the FTC had collected civil penalties under ROSCA was in January 2023, as covered by InfoBytes here.
The FTC’s complaint alleges that consumers were deceived into signing up for a $250 cash advance, but many users were unable to receive any money at all. Furthermore, consumers had to have first entered a $9.99 monthly membership––regardless of whether they qualified for the $250 or not. Further, if a user wished to cancel their monthly membership, the fintech firm employed “dark” and manipulative design tricks to “create a confusing and misleading cancellation process that prevented consumers from canceling their subscriptions.” The FTC’s proposed settlement order must first be approved by a federal judge before it can go into effect.
On November 3, the U.S. Court of Appeals for the Second Circuit reversed and remanded a district court’s decision to deny a buy now pay later servicer’s (defendant) motion to compel arbitration in a class action. The plaintiffs alleged the defendant violated the Connecticut Unfair Trade Practices Act, among other things, after the defendant’s charges incurred overdraft fees on the plaintiff’s checking account. The defendant argued that the consumer agreed, on multiple occasions, to the mandatory arbitration provisions in the servicer’s terms and conditions when she used its services. The district court concluded that the plaintiff did not have “reasonably conspicuous notice of and unambiguously manifest assent to [defendant’s] terms” and therefore plaintiff was not bound by the mandatory arbitration provisions in the defendant’s terms.
The 2nd Circuit panel of three judges identified “several factors” in its finding that the plaintiff had reasonably conspicuous notice, including that defendant’s interface was “uncluttered” adding that “[a] reasonable internet user, therefore, could not avoid noticing the hyperlink to [defendant’s] terms when the user selects ‘confirm and continue’ on the [application].” Further, the court found that the plaintiff “unambiguously manifested her assent” to the defendant’s terms and conditions.
On October 31, New York AG Letitia James released a report detailing racial disparities in homeownership and access to home financing in New York. The report states that Black and Latino New Yorkers are “underrepresented” among mortgage applicants, and white households are overall more likely to own homes than Black, Latino, or Asian households. The report also found that regardless of credit score, income, size of the loan and other factors, all applicants of color are denied mortgages at a higher rate than white applicants. In addition, the report found that disparities between white borrowers and borrowers of color persist in the context of refinance transactions and are also present in loans made by “[n]ew private-sector, non-depository lenders.”
The report identified policy solutions that could reduce these disparities, including (i) subsidizing down payments and interest rates for first-generation homebuyers; (ii) increasing state funding for nonprofit financial institutions that support underserved communities of color; (iii) passing the New York Public Banking Act, which would create a regulatory framework for the establishment of public banks, thereby expanding access to affordable financial services in underserved areas; (iv) bolstering resources for government agencies to conduct fair lending investigations and enhancing New York’s Human Rights Law to explicitly prohibit discriminatory lending practices; and (v) exploring options for offering state-provided banking services in accessible locations to increase access to traditional banking services.
On October 30, the Minnesota Attorney General’s office filed a complaint against a Montana tribal economic development entity claiming that the entity’s lending subsidiaries violated state and federal usury laws through deceptive trade practices and false advertising. The complaint alleges that “[d]efendants ignore these laws and have in recent years made thousands of loans to consumers in Minnesota at interest rates exponentially higher than what is permitted. They do so while deceiving Minnesotans to believe the defendant lenders are immune from Minnesota law because they are owned by a federally recognized Indian tribe. But even sovereign entities and their subsidiaries must comply with Minnesota and federal law when they transact business in Minnesota.” The complaint claims that the company’s lending subsidiaries charged interest rates up to 800 percent and led state residents to believe that the entity was exempt from state laws that protect against predatory loans. Minnesota laws cap interest rates for written contracts at 8% unless otherwise exempted. Loan contracts that violate the law may be voidable and have no legal effect. The Attorney General is seeking an injunction to block the company from operating in Minnesota, a declaration that “marketing, offering, issuing, servicing, collection, and providing of [these] loans” is in violation of federal and state laws, and compensation for the residents affected by the defendants’ actions.
On November 1, the Federal Housing Administration (FHA) proposed updates to FHA’s Home Equity Conversion Mortgage Program that are intended to address a number of servicing issues where existing program requirements have conflicted with HUD’s policy objectives. FHA is requesting public feedback. Key changes include the following:
- Allowing mortgage servicers to contact borrowers by phone to verify occupancy for the program’s required annual occupancy certification;
- Allowing outstanding homeowner’s association dues to be included in the calculation of a repayment plan for borrowers who are behind on their HECM financial obligations;
- Expanding the ability of mortgage servicers to work with borrowers who are behind on their property tax or hazard insurance by an amount up to $5,000 without calling the mortgage due and payable;
- Allowing mortgage servicers to assign a HECM to HUD after the servicer has funded a cure for a borrower’s delinquent financial obligations so long as the borrower has made all property charge payments for one year and all other assignment eligibility criteria are met;
- Streamlining requirements for executing alternatives to foreclosure and updating existing incentive payments for successful completion of loss mitigation options; and
- Providing a new incentive payment to mortgage servicers for completing these alternatives.
On November 1, the SBA announced that three new Small Business Lending Company (SBLC) licenses have been issued to lenders focused on underserved markets, which is notably the first expansion of the SBLC program in more than 40 years. An SBLC license permits lending institutions to leverage government guarantees during the process of approving small business loans, decreasing risk for the lender, and lowering costs for the borrower. Consequently, SBA noted, SBLCs can extend a greater number of loans to small businesses than would be feasible without government support. The announcement stated that SBA's current SBLCs surpass banks and credit unions in their ability to provide loans to minority-owned businesses.
In June, the SBA opened a window for new applications for lenders. In announcing the new licensees, SBA Administrator Isabel Guzman stated that “[w]ith the addition of three new Small Business License Companies, the SBA will be able to serve even more small business owners who need capital to start, operate, and grow their businesses.” The SBA highlighted that “[e]ach of the three new SBLC license holders will focus on historically underserved markets, including small businesses in Native, rural, and low-income communities.”
On October 26, a U.S. District Court for the Eastern District of New York granted a motion to dismiss an FDCPA suit holding that there is nothing in the FDCPA that prohibits debt collectors from reporting information about a debt to a credit reporting agency. The plaintiff filed a complaint in January 2023 alleging that the defendant violated the FDCPA by communicating with the plaintiff after the plaintiff requested that the debt collector stop all communications. The plaintiff further alleged that the defendant violated the FDCPA by reporting this debt to the major credit reporting agencies, which subsequently led to the plaintiff being denied credit. While the judge ruled that the plaintiff had standing to sue because of the denial of credit, the judge also ruled that the statute “expressly permits communications with ‘a consumer reporting agency if otherwise permitted by law,’” and that the plaintiff did not allege that negligence was the proximate cause of damages.